How to Identify Real Estate Hotspots #05: The Boom Town syndrome

The biggest recent phenomenon in regional real estate investment has been the Boom Town syndrome.

This relates partly to the impact of the resources sector but more often is caused by extensive spending on new infrastructure and property development in a strong regional centre with a growing population and a diverse economy.

Boom Towns are regional locations boosted by major events such as construction of a power station, a hospital and/or new transport infrastructure (which creates new jobs and therefore demand for homes). Sometimes infrastructure spending can create new industries and broaden the economies of regional cities, making them stronger places to invest.

Other Boom Towns are places which have surged thanks to mining operations or major industrial projects.

But pure mining towns are probably the riskiest of all residential property investments – because while investors who get in early can make big capital gains, these markets exist in a bubble which can burst if demand for Australian resources drops or if the local mine closes – or accommodation demand declines once a big project is built and the workers leave town.

The Australian continent is littered with the carcasses of former mining Boom Towns – notably, right now, the coal mining towns in Central Queensland.

Moranbah has been a Boom Town. It sits in the coal-rich Bowen Basin in central Queensland and has many active mines. Until recently, Moranbah had an accommodation shortage.

Before 2013, Moranbah’s median house price had grown an average 30% per year for the previous decade, reaching $750,000, while typical house rents were $1,800 per week.

But there was a stark decline in rents and prices in 2013, as vacancies rose quickly to around 10%, and this continued in 2014, 2015 and 2016.

This was caused by downsizing in the coal industry and by growing use of Fly-In-Fly-Out workforces, which has reduced demand for

housing in Moranbah. By early 2017, property values and rents had dropped to a fraction of those previous peak levels, with a median house price around $150,000.

Because of this kind of volatility in mining towns, Hotspotting prefers to focus on well-rounded regional centres with diverse economies. Some may have an impact from the resources sector as well, but we regard this as bonus activity rather than the core element that gives a regional centre Boom Town status.

Townsville is a regional city that fits the Boom Town criteria. It has a wonderfully diverse economy, with strong elements of government administration, tourism, education, military and manufacturing.

There is also some impact from the resources sector: many mining sector workers live in Townsville and fly-in-fly-out, while the city has a number of major refineries which process minerals extracted out west and a significant export port. But Townsville’s Boom Town status is more to do with growth in its diverse economic sectors.